Beating Back the Short Attack

Since everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short sellers, at least. These contrarian investors bet that hot stocks are primed to fall and are aiming to turn their pessimism into potential profits.

This week, we're looking at some big players on the Nasdaq. Combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these companies Fools believe have the power to make short work of short sellers.

Company

Shares Short, April 30

Shares Short, April 15

% Change

% of Float

CAPS Rating (Out of 5)

Microsoft (NASDAQ:MSFT)

98.4

109.1

(9.78%)

1.23%

***

Encysive Pharmaceuticals

2.2

2.6

(16.37%)

2.80%

****

Intel (NASDAQ:INTC)

44.9

55.9

(19.57%)

0.79%

****

Finisar (NASDAQ:FNSR)

23.4

18.6

25.84%

8.18%

****

Cisco (NASDAQ:CSCO)

57.0

62.9

(9.45%)

0.96%

****

Level 3 Communications (NASDAQ:LVLT)

243.5

237.2

2.65%

16.21%

****

Millennium Pharmaceuticals

17.1

17.4

(2.00%)

5.29%

***

Liberty Media Interactive

16.3

14.8

10.20%

2.85%

***

Yahoo! (NASDAQ:YHOO)

38.0

36.1

5.12%

3.04%

**

RF Micro Devices

28.2

28.7

(1.83%)

9.87%

*****

Shares short and float data courtesy of wsj.com. CAPS Rating courtesy of Motley Fool CAPS. Share counts in millions. *Shares outstanding, minus shares controlled by insiders, restricted stock and shares held by 5% owners.

Of course, this isn't a list of stocks to buy -- or short! These stocks could have serious problems that warrant their short interest, but they might also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain; our 100,000-strong CAPS community just offers a good place to start. Yet investors seem divided in their opinion of these companies; six have garnered four stars or better on their CAPS ratings.

Let me be! No, don't!
Maybe Microsoft was the stubborn one in negotiating a takeover of Yahoo!, as Jerry Yang suggests. Then again, the Internet portal hasn't exactly made itself seem all that desirable, if earnings reports are any judge. So perhaps Steve Ballmer, for whatever faults he does possess, was right to hold firm to his price. I mean, while Yahoo! was holding out for $37 a share, Ballmer was willing to give $33, or about 25% more than what the market is willing to pay now for it.

Now Yang seems a bit remorseful for letting Microsoft go after all. Perhaps the saga will continue to play out, particularly with a few large shareholders upset at how coy Yahoo! was playing. Will Ballmer come back to the table again? If so, he would certainly have a reasonable expectation to return with a bid lower than the last one. It would indeed be a tough pill for Yahoo! to swallow, but it would also be a smooth move for Microsoft.

As top-rated CAPS All-Star investor jstegma pointed out to Yahoo! investors just before the deal fell through, Microsoft needs to remind the portal that it was already being overly generous with its offers to begin with:

[Microsoft] should just go silent on this buyout for a while. [Yahoo!] isn't going anywhere. If they walk away for now, the share price will drop to below $20. That would be the time for a hostile takeover bid.

Not everyone is so sure. CAPS player jdshilling thinks Microsoft needs Yahoo! less than it needs to keep the company out of Google's (Nasdaq: GOOG  ) clutches:

I don't think it's out of the question to see [Microsoft] coming back with a $50b bid to buy [Yahoo!] up. Combining [Yahoo!] and [Microsoft]'s search market shares would give [Microsoft] a market share of roughly 30%. That's only about half of what Google has, but would effectively triple [Microsoft]'s search traffic. The next closest viable takeover candidate is ASK.com, with a measly 2.5% market share. I just don't see how Microsoft can afford to let Yahoo go if they are serious about going after Google.

Speak up
You've heard from the CAPS community -- now it's your turn to have your say. Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine? May the best argument prevail!


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